Regional banks up despite loan issues

GregMorcroft

NEW YORK (MarketWatch) -- Shares of regional banks rallied Tuesday as analysts said that first quarter credit trends were not as bad as some had feared, despite rising provisions for loan losses and growing write-offs for nonperforming loans.

Analysts responded warmly to the higher-than-expected bank earnings, saying that despite significant loan-loss reserves still to come, many regional banks did better than expected.

"Overall, a good quarter from M&T Bank Corp. considering the environment," said David George, an analyst with Baird, in a research note Tuesday. "Revenue trends were solid, credit held up reasonably well, and core number was better than the consensus. We expect the stock to trade higher on these results."

M&T Bank Corp.
MTB, -0.84%
said first-quarter net income grew 15% to $202.2 million, or $1.82 a share, from $175.9 million, or $1.57 a share, a year before.

Visa's IPO boosted M&T's results by $29 million, or 26 cents a share, the company said.

Several of the nation's major regional banks, from the Deep South through the Midwest, said Tuesday that plummeting housing prices and other financial strains on borrowers are forcing large loan write-offs and provisions for bad loans, undermining quarterly profits.

They said that people are continuing to succumb to financial pressure as unemployment rises and they are becoming unable or unwilling to pay off loans as they lose equity in their homes.

They also said they expect the pain to continue through 2008.

"[Banks will see] fundamental headwinds facing the industry, such as normalizing credit costs, slowing loan demand, and a tougher mortgage environment," Baird analyst George wrote. "While cost control and acquisition-related synergies will help, these headwinds will mitigate growth trends in the near term. Fortunately, we believe consensus earnings estimates have now come down to reasonable levels."

Schwab reported Tuesday a 12% increase in first-quarter profit as customers continued to plow money into the company's brokerage, bank and retirement accounts, helping offset some of the drag from falling interest rates and stock markets.

Net new assets totaled $41.3 billion for the first quarter, 5% higher than the fourth quarter of 2007 and one of Schwab's best three-month periods ever, the company said.

Similarly, clients opened 246,000 new brokerage accounts during the first three months of the year, up 27% from a year ago and the highest total in almost seven years, Schwab reported.

Daily average revenue trades (DARTs) were 274,600 and the average commission rate was $14.47.

"The DART figure bodes well for reports from Schwab's peers later this month," BMO Capital Markets analysts wrote Tuesday.

Elsewhere, shares of State Street Corp.
STT, -0.70%
fell about 10% as worries over the company's exposure to structured investment vehicles and unrealized portfolio losses overshadowed better-than-expected quarterly profit. See full story.

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